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BNP Paribas gains licence to underwrite ‘panda bonds’ in China

Onshore issuance by foreign companies is expected to rise.

BNP Paribas has received a
licence to underwrite bond sales by foreign companies in China, the bank said
on Monday, the latest step by Chinese regulators to increase foreign participation
in mainland debt markets.

After years of complaints by
foreign banks about market access in a broad range of business lines,
regulators are also seeking to demonstrate greater openness — partly as a means
to rebut complaints by US President Donald Trump.

BNP Paribas is the third
locally incorporated foreign bank in China to receive a licence to underwrite
so-called panda bonds, following HSBC and Standard Chartered. No US bank has
yet achieved such a licence.

But panda deals remain rare,
with only Rmb9.4bn ($1.4bn) in such bonds issued since the beginning of last
year, according to Wind Info. Issuers include the government of Hungary,
Malaysian lender Maybank, the Canadian province of British Columbia and the
Philippines' government.

Still, BNP Paribas expects
issuance to grow in the coming years and Chinese regulators are taking steps to
streamline the approval process.

"
"With the growing maturity of multinational corporations' operations onshore in China, foreign parent companies are increasingly seeking to tap the domestic bond market as an important and highly cost-effective source of renminbi funding to support their Chinese expansion needs""

CG Lai, Deputy Chief Executive, BNP Paribas China

Beyond panda bonds, foreign
banks have long sought licences that allow them to underwrite debt by Chinese
issuers.

CG Lai, Deputy Chief Executive, China, BNP Paribas

In July, Deutsche Bank received
a licence allowing it to underwrite short-term commercial paper and medium-term
notes, a popular form of corporate debt in China's interbank market. Citigroup,
BNP Paribas, HSBC and JPMorgan Chase also have this licence. In April, the
banking regulator issued rules allowing all foreign banks to underwrite
government bond sales without previous approval.

But in China's fragmented bond
market — where different agencies regulate different categories of debt — no
single licence enables a bank to underwrite all types of debt. China is seeking to expand
foreign participation in its onshore bond market as investors as well as
issuers. A bond connect programme launched last year allowed foreigners to buy
mainland bonds through Hong Kong brokers.

Foreign holdings of Chinese
onshore bonds reached Rmb1.75tn by the end of September, up more than Rmb500bn
from the end of last year, according to central bank data.

Overall market access for
foreign banks has also increased, though only at a modest pace.
In March, China's securities
regulator issued rules permitting foreign groups to own majority stakes in
mainland securities and companies and fund managers, though no foreign group
has yet achieved such a majority stake under in either category under the
latest regime.

Last December, the banking
regulator eased rules for foreign commercial banks in a range of areas,
including new branch openings.